April income and spending not better than March, but a lot better than February.

It reflects information from a month ago, but it's still always worthy to look at the Income and Spending report, which came out on Friday.

The topline numbers would be alarming if viewed in isolation. But it's worth knowing that it comes after a major increase in incomes and spending in March.

Personal income decreased $3.21 trillion (13.1 percent) in April according to estimates released today by the Bureau of Economic Analysis (tables 3 and 5). Disposable personal income (DPI) decreased $3.22 trillion (14.6 percent) and personal consumption expenditures(PCE) increased $80.3 billion (0.5 percent).

Real DPI decreased 15.1 percent in April and Real PCE decreased 0.1 percent; goods decreased 1.3 percent and services increased 0.6 percent (tables5and 7). The PCE price index increased 0.6 percent. Excluding food and energy, the PCE price index increased 0.7 percent,

But that $3.21 trillion (annual rate) decrease in personal income is entirely due to the fact that a lot of Americans got stimulus checks in March, and didn't in April. Wages and salaries (+1.0%) as well as business incomes (+3.2%) had solid increases in April, and unemployment payments ts declined in April, which can also be translated as a good sign.

Those underlying income numbers seem like an economy that's in the right direction to me. And while the spending side barely increased in April (and slightly lost ground vs inflation), let's note that it followed a 4.7% increase in March. Take a step back, and you can see that Americans are spending much more than they were at the end of 2020.

It's also no coincidence that April was a month when COVID resurged, with daily cases growing for the first time in 4 months. That has quickly subsided as more of the population has been vaccinated and the weather has warmed, with the 7-day average of new cases dropping from over 71,000 in April to barely more than 21,000 today.

The bigger story with the spending numbers is that Americans have started adjusting their habits back toward what they were in the pre-COVID World. It likely won't even be the same mix and choices as before, but note that goods spending dropped in April (particularly non-durable goods like groceries and clothing) while services continued to grow.

With COVID cases, capacity constraints and mask mandates fading away throughout May, let's see if that trend continues in the next month (bet it does). It also helps explain why you're seeing all of those whiny stories from service businesses complaining that they can't hire up to match the improving demand - stories that conveniently ignore that those same businesses laid off large numbers of people when service spending plummeted last year when COVID first broke out.

The story that pessimists (and cynical Republicans) drew out of the Income and Spending report was the 0.7% increase in core PCE for April, and the 3.6% year-over-year increase in overall prices, claiming that high inflation was here and going to be a drag on the economy. But the bond market sure doesn't seem to believe it, as the benchmark 10-year note actually dropped after the April income and spending report came out, and is now back below 1.6%.

Bottom line - that April income and spending report added more evidence that our economy took a short breather in April, but at higher levels than we were at before. From all indications, the May numbers will be better as the cloud of COVID continues to lift. The only questions remain as to whether inflation will follow or level off, and if we lawmakers continue to keep their foot on the gas to continue to close the many gaps that still appear in the wake of 2020's wreckage.